The Leser Group and the Dollar: the 75% Covenant Could Be Crossed Before December
The Leser Group complied with its covenants on March 31, but adjusted net debt to CAP stood at 74.30% against a 75% ceiling under Series H. Management already warns that the approval-date dollar rate could lead to June noncompliance, while the Tracking Share mechanism protects accounting equity rather than adding cash.
After solo cash covered the June payment, the next pressure point at The Leser Group may arrive before the December maturity. Adjusted net financial debt to CAP stood at 74.30% on March 31, against a 75% ceiling under Series H and a 75% interest-adjustment threshold under Series Z and Series T. The numerical room is very narrow, and the company itself estimates that if the dollar rate on June 30 is similar to the rate at the financial-statement approval date, it will not meet that ratio and a certain minimum-equity covenant. This is not only a bond-payment timing issue. The bonds are shekel-denominated, while the assets and operating base are dollar-based, so shekel appreciation can worsen covenant math even if property operations do not deteriorate. The Tracking Share arrangement with minority holders can support shareholder-attributable equity, but it does not add cash or reduce debt. The rest of 2026 therefore runs on two separate tracks: assets that must become cash for December, and covenants that need to stay inside the line already in June.
The 75% Covenant Is Closer Than the Maturity
In U.S. income-producing real estate, refinancing and property sales are not unusual by themselves. The abnormal point here is the currency mismatch between the traded debt and the asset base. When the shekel strengthens against the dollar, debt-to-CAP can worsen even if NOI is stable. That is why the small line in the covenant table matters more than the broad December-payment story.
The company met all covenants on March 31, but the cushion is not the same across metrics. Adjusted NOI was $54.316 million, far above the minimums under Series Z and Series T. Series H LTV was 71.14% against an 80% ceiling, leaving some collateral room. The tight metric is debt-to-CAP, which already reached 74.30% against the 75% ceiling under Series H.
| Covenant Layer | Relevant Threshold | March 31, 2026 Result | Meaning |
|---|---|---|---|
| Debt-to-CAP under Series H | Up to 75% | 74.30% | Only 0.70 percentage points of room before the key covenant |
| Debt-to-CAP under Series Z and Series T | 80% covenant, 75% interest-adjustment threshold | 74.30% | The legal covenant is farther away, but 75% still matters for debt cost |
| Series H LTV | Up to 80% | 71.14% | Collateral provides room, but it still has to be sold or refinanced |
| Equity excluding minorities | $200 million to $215 million covenant thresholds, $225 million to $245 million interest-adjustment thresholds | $264.369 million | There was room on March 31, but management warns that the dollar rate could hurt a certain equity covenant in June |
The auditors' emphasis paragraph ties the layers together: a working-capital deficit, negative operating cash flow, near-term loan and bond repayments, and financial covenants hurt by sustained shekel appreciation against the dollar. This is not background language. It says the immediate question is not only whether the company can find the December cash, but whether it remains inside the financial framework while trying to do so.
Tracking Shares Protect Equity, Not Cash
The minority-interest arrangement is the more hidden point. After the balance-sheet date, partners in 1430-1500 Dekalb, 6 Locey Lane and 3800 Horizon gave irrevocable commitments that allow the company to acquire their interests in exchange for shares in the company or in entities above it, structured as Tracking Shares. The book value of those interests was about $6.4 million on March 31.
The activation conditions are narrow. The board, by a majority of external and independent directors, may activate the commitments if in the preceding quarter equity excluding minority interests falls below $215 million, and if the information available to the board shows that activation would cure the breach in the following quarter. The commitments are valid for 12 months and are cancelled if the controlling shareholder contributes real-estate interests or cash totaling at least $5 million.
The economic meaning is clear: this is a solution for the equity line, not for liquidity. If activated, the mechanism may move minority interests into a layer that strengthens equity attributable to shareholders and helps with minimum-equity covenants. It does not put a dollar in the bank, reduce bond principal, or replace an asset sale or bank refinancing. It can reduce a technical covenant risk, but it does not solve the risk that keeps December dependent on disposals.
That distinction matters most for debt-to-CAP. This ratio is driven by adjusted net financial debt and CAP, not only by the classification of minority interests. A cleaner way to reduce it is to repay debt, bring in net cash through transactions that close on time, or repay or refinance Series H so its 75% limit disappears. Tracking Shares can help the accounting-equity layer, but they do not create the cash that removes the pressure.
By June, the Company Needs Ratio Relief, Not Just Cash
The covenant testing date makes the timetable tight. The 1080 McDonald Avenue sale is scheduled to close on June 30, 2026, exactly around the test date, and the company expects roughly $17 million of surplus cash if the transaction closes. The roughly $4 million deposit has already become non-refundable, so the deal moved from intention to a more binding stage, but the cash still has to arrive.
The same logic applies to the Series H collateral assets. The assets pledged to Series H and intended for sale or refinancing were valued at about $123.2 million. The company plans to use sales or bank financing to repay or refinance Series H, which would remove that series' 75% limit. Until that happens, a dollar-rate move can affect the covenant calculation faster than a sale or refinancing can reach signing.
The balanced point is that one breach is not necessarily the end of the story. Bondholders have an immediate-repayment right if the company fails to meet the covenants for two consecutive quarters. Still, even a first breach can change negotiation terms, trigger interest-adjustment mechanisms, increase dependence on bondholder consent, and weaken the company's ability to wait for better transaction terms. The June 30 test is therefore not a procedural step on the way to December. It is its own event.
The Next Proof Point Is June 30 Covenant Compliance
The current read on the company is not only cash versus maturity. The company needs to show that it can manage shekel debt against dollar assets without entering a cycle of accounting fixes and creditor negotiations before December arrives. If McDonald closes on time, Series H collateral moves into binding sale or financing agreements, and the dollar does not push debt-to-CAP or minimum equity outside the line, the technical pressure can fall quickly. If the dollar rate remains at a level that creates a breach, Tracking Shares may help with part of the equity layer, but investors will need to test whether that is only a numerical repair while the debt still waits for cash. The next proof point is simple: on June 30, the company needs compliance, a clear cure, or an action that reduces debt, not only a December plan.
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